Tax Savings Ideas
All businesses pay taxes, but with some preplanning, a business can reduce its tax liability by taking steps in the fourth quarter of the fiscal year. Schedule time to meet with your bookkeeping and accounting firm or at least four months before the end of the fiscal year to help you estimate your tax liability. This will allow time to develop a strategy for reducing the amount you owe. With a little preplanning, you won’t have any surprises when tax time comes around. In fact, you might even enjoy it!
Buy Business Equipment
Ask your bookkeeping and accounting firm to verify what types of purchases can be taken as write-offs against your tax liability in the first year you own and use the equipment. Certain real estate purchases qualify too.
Timing is Everything
Once you know what your tax liability will be, you can review your current expenses and determine if it makes sense to move some expenses to the following tax year or spend more money in the current tax year to reduce what you owe. For instance, you can decrease your income by buying more office supplies before the end of the fiscal year, or you could prepay some expenses for the following fiscal year. Determine what makes the most sense for reducing what you owe.
Write Off Bad Debt
If your business runs on the accrual accounting method, ask your bookkeeping and accounting firm to prepare a report of any outstanding customer accounts. Identify those accounts where it is unlikely they will pay and write them off as bad debt and deduct this total from your business income.
If you made a loan to an employee, a customer, or a vendor, these could be counted and deducted as well. For a bad debt deduction, you must be able to demonstrate that at the time of the transaction, you intended to make a loan and not a gift.
Establish and Fund Retirement Plans
The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) changed retirement plans by making them more flexible. Small businesses may be eligible for a tax credit for costs related to starting a SEP, SIMPLE IRA, or another qualified plan.
Take Advantage of Tax Credits
In terms of tax savings, tax credits are better than deductions because they are taken from the business income before gross taxable income is determined, reducing the business’s net taxable income.
Check with your tax advisor to see if your business can take advantage of any tax credits offered by the federal government to lower your business income. For instance, you might be able to take a tax credit for hiring employees, starting a health coverage plan for your employees, providing disabled access to your building, etc.
Deduct the Cost of Gifts
Did you buy any gifts for your customers or employees? If so, you can deduct up to 25 dollars per person. You cannot deduct gifts given to employees and customers that bear your business name, are given out routinely, or cost less than four dollars.
Check with your bookkeeping and accounting firm to see what entertainment costs can be deducted as these costs may or may not be able to be deducted depending on the type of business you operate.
Donate to Charity
Work with your bookkeeping and accounting firm to develop a plan for charitable donations. The IRS rules vary based on how much you give, your type of business, and the business’s revenue.
Plan Ahead to Reduce Taxable Income
Work with your bookkeeping and accounting firm to reduce the amount of taxes you owe by taking advantage of tax breaks and tax credit opportunities and explore new ways to lower taxes for your business. With some preplanning in the fourth quarter of your fiscal year, you will know your tax liability and more importantly, be able to make some adjustments to reduce your taxable income.
EVA Business Solutions love to help our clients build profitable businesses and keep them running smoothly! We are a virtual bookkeeping and accounting service ready to assist you with all of your bookkeeping, tax planning, and accounting needs. Call us today at (615) 461-7157.